Action Alert No. 08-44
October 30, 2008

NOTICE OF MEETINGS

Conceptual framework: measurement(estimated 1-hour discussion). The Board will discuss factors that should be considered in making standards-level decisions about the appropriate measurement bases for different types of assets and liabilities.

Open discussion. If necessary, the Board will allow time to discuss minor issues with staff members on technical projects or administrative matters. Those discussions are held following regular Board meetings as topics come up.

OPEN EDUCATION SESSION

Wednesday, November 5, 2008, following the Board meeting

The Board will hold an educational, non-decision-making session to discuss topics that are anticipated to be discussed at a future Board meeting. Those topics will be posted to the FASB calendar four days prior to the education session.

The Board will hold a public roundtable discussion to listen to the views of and obtain information from respondents to the September 15, 2008 FASB Exposure Drafts, Accounting for Transfers of Financial Assets, and Amendments to FASB Interpretation No.
46(R).

BOARD ACTIONS

The Board Actions are provided for the information and convenience of constituents who want to follow the Board’s deliberations. All of the conclusions reported are tentative and may be changed at future Board meetings. Decisions are included in an Exposure Draft for formal comment only after a formal written ballot. Decisions in an Exposure Draft may be (and often are) changed in redeliberations based on information provided to the Board in comment letters, at public roundtable discussions, and through other communication channels. Decisions become final only after a formal written ballot to issue a final standard.

October 20, 2008 Joint FASB and IASB Board Meeting

Conceptual framework: elements and recognition. The Boards tentatively adopted the following working definitions of an asset and of a liability for Phase B (elements and recognition) of their joint project on the conceptual framework:

Definition of an Asset

An asset of an entity is a present economic resource to which the entity has a right or other access that others do not have.

Present means that on the date of the financial statements both the economic resource exists and the entity has the right or other access that others do not have.

An economic resource is something that is scarce and capable of producing cash inflows or reducing cash outflows, directly or indirectly, alone or together with other economic resources. Economic resources that arise from contracts and other binding arrangements are unconditional promises and other abilities to require provision of economic resources, including through risk protection.

A right or other access that others do not have enables the entity to use the economic resource and its use by others can be precluded or limited. A right or other access that others do not have needs to be enforceable by legal or equivalent means.

Definition of a Liability

A liability of an entity is a present economic obligation for which the entity is the obligor.

Present means that on the date of the financial statements both the economic obligation exists and the entity is the obligor.

An economic obligation is an unconditional promise or other requirement to provide or forgo economic resources, including through risk protection.

An entity is the obligor if the entity is required to bear the economic obligation and its requirement to bear the economic obligation is enforceable by legal or equivalent means.

Next Step

The Boards will consider at future meetings how the working definition of a liability interacts with the Boards’ joint project on financial instruments with characteristics of equity.

Consolidations. The Boards considered the feasibility of developing common standards on consolidation by discussing the similarities and differences in the recently published FASB Exposure Draft, Amendments to FASB Interpretation No. 46(R), and the IASB staff draft of an exposure draft on consolidation to be published before the end of the year. The Boards’ discussions related mainly to the scope of the exposure drafts, the definition of control, and disclosure.

The Boards agreed that the likely timing of any final standards, and constituent feedback on the feasibility of the proposals, are important determinants of a convergence strategy. The Boards therefore agreed that a decision on any such strategy should be made after the IASB has published its proposals and the FASB has received comments on its proposals.

Derecognition. The Boards discussed two possible approaches to derecognition of financial assets:

No continuing involvement. The transferor of a financial asset (or a component of a financial asset) should derecognize the asset (or component) in its entirety if the transferor has no continuing involvement in the asset (or a component).

Practical ability to transfer. The transferor of a financial asset (or a component of a financial asset) should derecognize the asset (or component) if the transferee:

Has the practical ability to transfer that asset (or component) in its entirety to a third party for its own benefit

Is able to exercise that practical ability unilaterally and without needing to impose additional restrictions on the transfer.

A majority of each Board expressed a preliminary preference for approach 2 but asked the staff to develop both versions further. The Boards did not make any decisions.

Fair value measurement. The Boards discussed the following:

Progress of the IASB’s project on fair value measurement

Work of the IASB’s Expert Advisory Panel on the application of fair value when markets become inactive.

The session was informational and no decisions were made.

October 21, 2008 Joint FASB and IASB Board Meeting

Financial instruments with characteristics of equity. The Boards decided to begin future deliberations using the principles underlying the perpetual and basic ownership approaches. Under the perpetual approach, an instrument would be classified as equity if it:

Lacks a settlement requirement

Entitles the holder to a share of the entity’s net assets in liquidation.

Under the basic ownership approach, an instrument would be classified as equity if it:

Is the most subordinated claim

Entitles the holder to a share of the entity’s net assets.

The Boards acknowledged that they may decide to make exceptions to the basic principles as they continue to develop an approach to identify equity instruments.

Financial instruments: complexity. The Boards discussed comment letters received on the IASB Discussion Paper, Reducing Complexity in Reporting Financial Instruments, and the FASB Exposure Draft, Accounting for Hedging Activities. The Boards discussed how to move forward with the projects on a joint basis.

The session was informational and no decisions were made.

Emissions trading schemes. The Boards discussed accounting for emissions trading schemes, including how to account for the following:

Receipt of allowances in a cap and trade scheme

Baseline in a baseline and credit scheme.

The session was informational and no decisions were made.

Liabilities. The Boards discussed the role of expected cash flows in recognition and measurement decisions. They tentatively decided that:

Expected outcome approaches do not play a role in recognition decisions. They are a measurement tool to be used after the decisions about recognition are made.

Decisions on measurement should be independent of decisions about recognition.

In principle, measurements under conditions of uncertainty should take account of the range of possible outcomes and their relative probabilities. However, practical considerations may sometimes make it difficult to apply this principle. In general, IASB members stressed the benefits of the principle and FASB members stressed the practical concerns.

FUTURE OPEN MEETINGS

The following is a list of open meetings tentatively scheduled through December. Because schedules may change, please check the FASB calendar before finalizing your plans. Revisions to this list since the last issue of Action Alert are highlighted in bold.